Maverick - My Goodness - Still more Financial Poop on AMD
The Company plans to continue to make significant capital investments, at a significantly higher rate than in
previous years. These investments include those relating to the conversion of Fab 25 to 0.25 micron
process technology and the construction and facilitization of Dresden Fab 30.
The conversion of Fab 25 from 0.35 to 0.25 micron process technology is anticipated to be completed in
1998 at a cost in 1998 of approximately $351 million, although there can be no assurance that the actual
amount will not vary materially.
Dresden Fab 30 is being constructed by AMD Saxony, an indirect wholly owned German subsidiary of the
Company. This 900,000-square-foot submicron integrated circuit manufacturing and design facility is to be
completed over the next four years. The project is being supported by the Company together with the
Federal Republic of Germany, the State of Saxony and a consortium of banks. The plan for Dresden Fab 30
was revised in February 1998 to reflect planned upgrades in wafer production technology as well as the
decline in the deutsche mark relative to the U.S. dollar, which has increased the proportion of the project to
be funded by the Company rather than the Federal Republic of Germany, the State of Saxony and the
consortium of banks. The Company entered into foreign currency hedging transactions for Dresden Fab 30
during the first quarter of 1997 and the first quarter of 1998 and anticipates entering into additional such
foreign currency hedging transactions in the future.
The present estimated construction cost of Dresden Fab 30 is approximately $1.9 billion. In March 1997,
AMD Saxony entered into a Loan Agreement (the Dresden Loan Agreement), denominated in deutsche
marks, with a consortium of banks led by Dresdner Bank AG under
which loan facilities totaling $932 million will be made available for the Dresden Fab 30 project. In
connection with the Dresden Loan Agreement, as amended, the Company has agreed to invest in AMD
Saxony over the next two years equity and subordinated loans in an amount totaling approximately $270
million ($100 million in 1998 and $170 million in 1999), and to guarantee a portion of AMD Saxony's
obligations under the Dresden Loan Agreement up to a maximum of approximately $123 million until
Dresden Fab 30 has been completed. AMD is required to fund $70 million of the $170 million due in 1999
on an accelerated basis as follows: (i) if the Company undertakes a sale or other placement of its stock in
the capital markets in 1998, the $70 million will be funded upon receipt of the offering proceeds; (ii) if the
Company generates $140 million of net income (as defined in the Indenture for the Senior Secured Notes)
in 1998, the $70 million will be funded prior to January 31, 1999; (iii) if the Company does not fund through
(i) or (ii) above, the Company will fund the maximum amount allowed under the Indenture for the Senior
Secured Notes by January 31, 1999 and will fund the remaining amount through the sale of at least $200
million of the Company's stock by June 30, 1999. Because the Company's obligations under the Dresden
Loan Agreement are denominated in deutsche marks, the dollar amounts set forth herein are subject to
change based on applicable conversion rates.
In addition, after completion of Dresden Fab 30, the Company has agreed to make funds available to AMD
Saxony up to approximately $82 million if the subsidiary does not meet its fixed charge coverage ratio
covenant. The Company has also agreed to fund certain contingent obligations, including various
obligations to fund project cost overruns, if any, and to fund shortfalls in government subsidies resulting from
a default under the subsidy agreements caused by AMD Saxony or its affiliates, if any.
The Federal Republic of Germany and the State of Saxony have agreed to support the Dresden Fab 30
project in the form of (i) guarantees of 65 percent of bank debt to be incurred by AMD Saxony up to a
maximum of $932 million, (ii) investment grants and subsidies totaling $283 million and (iii) interest
subsidies from the State of Saxony totaling $169 million, all of which are denominated in deutsche marks in
the applicable agreements. In the event the grants or subsidies are delayed, the Company is obligated, as
requested by AMD Saxony, to provide interim funding, such interim funding will be repaid to the Company
as the grants and subsidies are received by AMD Saxony. As of March 29, 1998, the Company has
invested $170 million in AMD Saxony. The remaining $161 million required to complete Dresden Fab 30 is
to be provided from cash generated by AMD Saxony from 1999 to 2001, which will be derived from sales of
wafers to the Company.
Defaults under the Dresden Loan Agreement include the failure of the Company, AMD Saxony or AMD
Holding to comply with obligations under the Dresden Loan Agreement, the government subsidy and grant
agreements and related documents, including material variances from the approved schedule and budget,
the Company's failure to fund equity contributions or shareholder loans or otherwise comply with its
obligations relating to the Dresden Loan Agreement, the sale of shares in AMD Saxony or AMD Holding,
the failure to pay material obligations, the occurrence of a material adverse change or filings or proceedings
in bankruptcy or insolvency with respect to the Company, AMD Saxony or AMD Holding and the occurrence
of a default under the Credit Agreement or the Indenture. Generally, any such default which either (i) results
from the Company's non- compliance with the Dresden Loan Agreement and is
not cured by the Company or (ii) results in recourse to the Company of more than $10 million and is not
cured by the Company, would result in a cross-default under the Credit Agreement and the Indenture.
The FASL joint venture completed construction of the building for a second Flash memory device wafer
fabrication facility, FASL II, in the third quarter of 1997 at a site contiguous to the existing FASL facility in
Aizu-Wakamatsu, Japan. Equipment installation is in progress and the facility is expected to cost
approximately $1.1 billion when fully equipped, which is anticipated in the second quarter of 2000.
Approximately $260 million of such cost has been funded as of March 29, 1998. Capital expenditures for
FASL II construction to date have been funded by cash generated from FASL operations and borrowings by
FASL and during the remainder of 1998, the Company presently anticipates that such capital expenditures
will continue to be funded by cash generated from FASL operations and borrowings by FASL. However, to
the extent that FASL is unable to secure the necessary funds for FASL II, the Company may be required to
contribute cash or guarantee third-party loans in proportion to its 49.992 percent interest in FASL. At March
29, 1998, AMD had loan guarantees of $48 million outstanding with respect to such loans. The planned
FASL II costs are denominated in yen and are therefore subject to change due to foreign exchange rate
fluctuations.
In 1996, the Company entered into a syndicated bank loan agreement (the Credit Agreement), which
provides for a $150 million three-year secured revolving line of credit (which is currently unused) and a $250
million four-year secured term loan. All of the secured term loan is outstanding at March 29, 1998. The
secured loan is repayable in eight equal quarterly installments of approximately $31 million commencing in
October 1998. As of March 29, 1998, the Company also had available unsecured uncommitted bank lines
of credit in the amount of $67 million, of which $5 million was outstanding. |
